1、M FoundationConstruction|JapanHow Far Will Margins Rise?Are General Contractors Still a Buy?Construction supply/demand still tight,this time characterized by supply shortage,which we do not expect to abate any time soon;supply/demand to remain tight on supply shortage.Morgan Stanley MUFG Securities

2、Co.,Ltd.+Ryo YagiEquity Analyst Ryo.Y +81 3 6836-8938 ConstructionJapanIndustry ViewAttractiveIn this report we analyze supply,demand,and supply/demand balance of the construction market to answer two questions most frequently asked by investors:1)Can we expect further increases in stock prices of g

3、eneral contractors(focusing on majors of greatest interest)?;and 2)will construction margins of majors exceed the 13-14%recorded in F3/17 and F3/18,pre-Olympics?Our analysis concludes that:1)On further increases in the stock prices of general contractors:Considering fundamentals,performance trends,a

4、nd valuations,we expect further increases.2)On construction margins of majors exceeding the 13-14%recorded in F3/17 and F3/18(pre-Olympics):Considering order-stage profitability and the potential for improvement in profit margins upon completion,it is entirely possible that the margins of major gene

5、ral contractors will reach or exceed 13-14%.(However,as it is difficult to predict the extent of cost increases,we are currently making a conservative assumption that margins will not reach 13-14%even in F3/29.)Risks:We expect supply/demand to remain tight,rooted in shortage of supply.In this situat

6、ion,the biggest risk on the demand side is that factory investment decreases sharply.Stocks to watch:Our scenario analysis indicates Taisei has the greatest upside potential on improved construction margins.Wed highlight Taisei when the market is pricing in the scenario(examined in this report)of bu